A weekend getaway to Lancaster last weekend had me tricked, at one point, that life was finally getting back to normal. Stores were crowded on Saturday, to what I would consider pre-pandemic levels, and yes, everyone was wearing a mask, but that's not the fake return to "normalcy" I was referring to. That occurred Sunday, when it was time for lunch. We were crunched for time, and tried two places, Texas Roadhouse (TXRH) , where the wait was 45 minutes, then Cracker Barrel (CBRL) where it was 90 minutes. Now, normally in that area, there are plenty of great non-chain places to eat, but not on a Sunday, where, refreshingly, quite a bit of retail is closed on Sunday. It was those wait times that had me thinking of more normal times, despite the fact that they were caused by low restaurant availability. In addition, it was still nice to see consumers lining up to eat out, which may mean that the fear is subsiding. Granted, we are not talking about full capacity in these restaurants, but this is 2020, and we need every ray of hope there is.
As a follow-up to Friday's column on restaurant acquisitions, I believe we will see more activity in that arena, despite all there has been in recent years. I don't think the big names such as McDonald's (MCD) , Chipotle (CMG) , or Yum Brands (YUM) will be taken out, but some of the small and mid-size names may be on the menu.
Cracker Barrel (CBRL) , which is a not a new idea from me, remains a top candidate. After one non-profitable covid quarter, CBRL is back in the black, still possessing a somewhat cult-like following. It remains real estate rich, despite some recent monetizations, owning the land and building for 360 locations, many in desirable highway locations. In September, the company did a sale and leaseback deal selling 64 owned locations to Oak Street Real Estate Capital for $208 million. A second deal involves the sale and leaseback of another 62 stores, valued at $150 million.
It ended its latest quarter with $437 million in cash, and $949 million in debt, both of which are elevated due to the company's covid related drawdown of its revolver. This would be a nice mid-size acquisition for someone looking to build out its restaurant brand portfolio. The real estate is a potential sweetener. CBRL's current enterprise value (market cap + debt - cash) is about $3.35 billion.
Making the situation potentially more interesting, perhaps, is Biglari Holdings' (BH) , (BH.A) , latest attempt at a proxy fight. BH, which owns 8.7% of the company, and at one point owned nearly 20%, is back at it yet again, trying to get a seat on the CBRL's board. Last week, Biglari fired off a letter to CBRL, outlining its case for an independent director, and disputing a whole host of the company's claims.
BH has failed in every prior attempt to gain a seat at the CRBL table, and I believe it is likely that this attempt will also be unsuccessful. While CBRL has had some recent missteps, including quickly abandoning its investment in Punch Bowl Social, the combination of BH's smaller stake in CBRL, and its own difficulties in trying to reinvigorate it's own Steak n Shake brand, may make this another failed proxy contest. It's difficult, in my view, to tell a company such as CBRL how to more successfully run their operation, even if some of the ideas are sound, when one of your own restaurant brands is flailing.
I'll suggest some additional restaurant takeover candidates in future columns.